We think global equity returns will remain below long-term historical averages, but will be higher than current valuations – which we expect to remain higher than normal – might suggest.

Our return forecast of 6.0% for developed markets is driven by our expectation for 4.2% revenue growth and a 2.4% dividend yield; our return forecast for emerging market equities is 8.3%.

Outlook Rationale

Developed market equities continue to benefit from ongoing – albeit mild – growth and low inflation. And valuations have retreated as earnings have moved higher. Emerging market equities remain attractive; we expect them to continue to benefit from higher growth and below-historical-level valuations.

We think interest rates will remain below investor expectations, driven by Stuckflation and accommodative central banks, leading to our 2.8% interest rate forecast for 10-year U.S. Treasury bonds, compared to 0.3% for 10-year Japanese government bonds and 1.0% for 10-year German bunds.

We expect a 4.6% global high yield annual return, as the stable economic outlook keeps a lid on default rates.

Outlook Rationale

Globally, inflation remains below central bank targets, and we expect that to continue.

To avoid inverting the yield curve, we believe the U.S. Federal Reserve will end its rate hike cycle – earlier and at a lower level than the markets expect.

We expect defaults in high yield to remain contained; a stable global economy will help emerging market debt, while U.S. municipals will benefit from overall credit stability.

We believe an equity-based approach to real assets will continue to offer investors strong results while providing diversification to portfolios.

We expect natural resources to continue to outperform equities, leading to our total return forecast of 7.2%. Our 6.0% forecast for global real estate acknowledges the positive support it will receive from its exposure to interest-rate and credit risk. And the public-to-private transfer of infrastructure projects has created new opportunities for investors, supporting a 5.4% total return.

Outlook Rationale

Ongoing global economic growth and better calibration between supply and demand will continue to fuel the outperformance of natural resources relative to global equities.

Global real estate should benefit from its exposure to both credit and interest-rate risk, but negative investor sentiment remains a headwind as the sector struggles to adapt to a digitally based economy.

Global listed infrastructure benefits as cash-strapped governments turn to the private sector to help meet their infrastructure needs.

We expect private equity to generate a 2.0% premium over equities, as companies stay private longer, generating more opportunities and offsetting increased investor interest. This will give private equity a total return of 8.0%.

Subdued economic cycles and stronger financial systems will push out the next recession and limit its severity.

We expect the slow growth trajectory to continue course, as the forces keeping a lid on growth have also extended the U.S. expansion cycle. Despite the increased odds of recession, we believe its onset will be later – and less threatening – than many expect.

Current U.S. Expansion Not Record Magnitude

Even with five more years of growth, total output will still be shy of expansions of the ’80s and ’90s.

Low and durable structural inflation has altered both monetary policymaking and investor behaviors.

We expect that inflation will remain subdued because structural forces have turned the 2% inflation target into a ceiling over the past 10 years. Further, we expect that monetary policy adjustments and trade friction will produce pockets of inflation, but companies and consumers will be able to alleviate the pressure.

Underachievers

Cumulative inflation shortfalls over the past decade are biggest in the three major economies.

Without a template for policy normalization, central banks’ efforts cannot be graded – but they must not fail.

We’re in new monetary policymaking territory where only two grades exist: Pass or Fail. Monetary experts know financial instability – not high inflation – ended recent business cycles. This time around, we think they’ll take a more cautious path.

Lower Lows, Lower Highs

Fed policy has moved closer to the zero-bound over the past 25-plus years.

Technology has been pulled into the orbit of government oversight, but will remain a constructive force.

Technology finds itself in the political cross-hairs, as its data collection endeavors – especially those for political purposes – have sparked deep angst. But we believe technology’s benefits are too great to be throttled for long.

The irreversible fade of legacy multi-lateral institutions is creating as many investment opportunities as risks.

We expect global engagement to continue, but it will be based on transactions-oriented, not ideological, frameworks. The tug of war between free markets and managed capitalism will be resolved somewhere in the middle.

Investors are accepting leaders who challenge political norms in order to favorably tilt the economic landscape.

Tech-enabled populists are pushing leaders with strong views and new agendas onto the political stage. All sides agree that control of executive power and technology are the key to shaping the future economic landscape. We expect investors will stay supportive until populism runs its course.

Hard to Please

Amid low approval ratings for politicians globally, populist leaders have found their niche.

Entrusted with nearly $900 billion of assets, we understand that investing ultimately serves a greater purpose and believe investors should be compensated for the risks they take — in all market environments and any investment strategy.

Forward-looking statements and assumptions are Northern Trust’s current estimates or expectations of future events or future results based upon proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve. Actual results could differ materially from the results indicated by this information.

Capital Market Assumption (CMA) model expected returns do not show actual performance and are for illustrative purposes only. They do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact the future returns. Stated return expectations may differ from an investor’s actual result. The assumptions, views, techniques and forecasts noted are subject to change without notice.

You could lose money by investing in the Money Market Funds. Although each of the Money Market Funds seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Funds’ sponsor has no legal obligation to provide financial support to the Funds, and you should not expect that the sponsor will provide financial support to the Funds at any time.

The Money Market Fund and the Municipal Money Market Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors.

An investment in Northern Funds involves risks, including possible loss of principal. Asset Allocation Risk: An asset allocation strategy does not guarantee any specific result or profit nor protect against a loss. Bond Risk: Bond funds will tend to experience smaller fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in price, especially for longer-term issues and in environments of rising interest rates. Equity Risk: Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed-income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes. Small-Cap Risk: Small-capitalization funds typically carry additional risks since smaller companies generally have a higher risk of failure. Their stocks are subject to a greater degree of volatility, trade in lower volume and may be less liquid. International Risk: International investing involves increased risk and volatility. Bond Risk: Bond funds will tend to experience smaller fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in price, especially for longer-term issues and in environments of rising interest rates. Interest Rate Risk: Increases in prevailing interest rates will cause fixed income securities, including convertible securities, held by the Fund to decline in value. Interest Rate Risk: Increases in prevailing interest rates will cause fixed-income securities, including convertible securities, held by the Fund to decline in value. Value Risk: Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value. For more important risk information, please visit individual fund pages information.

Please carefully read the summary prospectus or prospectus and consider the investment objectives, risks, charges and expenses of Northern Funds or FlexShares before investing. Call 800-595-9111 to obtain a summary prospectus or prospectus for Northern Funds or visit www.flexshares.com for FlexShares. The summary prospectus and prospectus contain this and other information about the Funds.

Investment involves risk, the value of an investment in a Fund may fall as well as rise. Funds shown may not available to investors in all jurisdictions. For legal and regulatory information about our offices and legal entities visit northerntrust.com/disclosures.

The Funds shown are sub-funds of Northern Trust Global Funds plc, Northern Trust Investment Funds plc or Northern Trust UCITS Common Contractual Fund, which are regulated collective investment schemes in Ireland under Central Bank of Ireland UCITS regulations. Past performance does not guarantee future results. Information contained herein has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Information is only current as of the date stated and is subject to change without notice. This information does not constitute a recommendation for any investment strategy or product described herein. This information is not intended as investment advice and does not take into account an investor’s individual circumstances. The prospectus in available in English and the key investor information document is available at www.northerntrust.com/pooledfunds.

For Asia-Pacific markets, this material is directed to expert, institutional, professional and wholesale investors only and should not be relied upon by retail clients or invest.

For Asia-Pacific markets, this material is directed to expert, institutional, professional and wholesale investors only and should not be relied upon by retail clients or investors. In Australia, The Northern Trust Company of Hong Kong Limited (TNTCHK) is exempt from the requirement to hold an Australian Financial Services Licence under the Corporations Act. TNTCHK is authorized and regulated by the SFC under Hong Kong laws, which differ from Australian laws.

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